Rupee at 13-month low against the dollar

The rupee opened stronger at 42.60, after closing at 42.75 against the dollar on Thursday, due to strong sentiments in the global equity markets, dealers said.

At these levels, exporters also started selling dollars, fearing a appreciation and the spot rupee reached an intra-day high of 42.30 against the dollar. Oil importers then rushed to buy dollars to make import payments.

 

The rupee-dollar exchange rate of 42.91 is the lowest since April 12, 2007. Friday's close meant that this week, the rupee dropped 2.2 per cent against the dollar, after a 2.3 per cent fall last week.

In 2008, the rupee has depreciated 7.6 per cent, with only the South Korean Won and Thai Baht seeing a steeper decline among the major Asian currencies.

The Indian currency has been depreciating on fears of the rise in global crude prices, which is in kissing distance of $127 a barrel. The worry is that the oil price rise will result in a higher import bill and widen the trade deficit further.

With a bearish outlook today, many foreign banks bought dollars on behalf of their FII clients, who are active in non deliverable forward market (NDF). These FIIs are buying dollars in India for one month forward at a lower rate and selling it in the NDF market where one month forward rate is commanding a much higher premium. The rupee outlook turned further bearish with a weak inflation and industrial production data.

Dealers explained that most of the custodian clients (foreign institutional investors) are booking profit on their investment in India but are phasing out the repatriation of funds through NDF dollar purchases in forward market.

Since the FIIs are buying in the NDF market, the actual purchase will only happen after one month. During this period, the portfolio investors can manage to generate funds by selling their holdings in the equity markets.

Dealers also said that NDF is another route of outflows of the portfolio investments apart from actual FII outflows to avoid procedural hassles.

At 42.90, once again the market witnessed dollar selling by exporters who booked long-term contracts of six months to one year. This brought down the dollar rupee to close at 42.51 to a dollar.

Booking of dollars by oil companies through short term contracts has pushed up the annualised one month and two month premia to a high of 3.10 per cent and 2.53 per cent, respectively.

On the other hand, aggressive dollar selling by exporters eased the premia in the long term. As a result, annualised premia for six month and one year forward dollars softened to 1.18 per cent and 0.99 per cent as against 1.51 per cent and 1.20 per cent on Thursday.